PWYP UK welcomes fifth UK EITI report, but has the UK fiscal regime been too generous to industry?

In December 2019, the United Kingdom’s Extractive Industries Transparency Initiative (EITI) Multi-Stakeholder Group (MSG) oversaw publication of the UK’s Kingdom’s fifth EITI report, covering calendar year 2018.

Former Prime Minister Theresa May had written in 2018 in her foreword to the UK Government’s A Green Future: Our 25 Year Plan to Improve the Environment (pages 4-5): “Our natural environment is our most precious inheritance … We hold our natural environment in trust for the next generation. By implementing the measures in this ambitious plan, ours can become the first generation to leave that environment in a better state than we found it and pass on to the next generation a natural environment protected and enhanced for the future.”  The 25 Year Plan has the clear goal of leaving the environment for future generations in a better condition than today.

Is the country obtaining true and lasting value from extraction both for present and for future generations?

When it comes to a country’s inherited non-renewable natural wealth, such as the UK’s North Sea oil and gas, the EITI is potentially an important tool to enable citizens to judge whether future generations will inherit as much value as their predecessors. For example, where such non-renewable natural resources are being exploited, is the country obtaining true and lasting value from extraction both for present generations and for future generations who will not have the same resources available to exploit?

Comprehensive review

The new UK EITI Reconciliation and State of Industry Report provides a thorough and detailed overview of the country’s oil, gas, mining and quarrying sectors in 2018 and maintains the UK MSG’s track record of publishing a high-quality EITI report in good time following the end of the reported year. Publish What You Pay UK, which works with others in civil society as part of the UK EITI Civil Society Network (CSN), is pleased to see another comprehensive and well-executed UK EITI report. As a member of the CSN we have contributed actively to the UK MSG’s work – despite the CSN withdrawing temporarily from the process in 2017-18 due to a dispute about civil society representation – since the UK first began to implement the EITI in 2013.

The UK report on 2018 provides narrative chapters (here, here and here) describing the state of the UK extractive industries, and numerous online data tables in open and machine-readable format that enable users to interrogate and repurpose the data. PWYP UK previously used online UK EITI data for 2016 to produce in 2018 the first known systematic comparative study of a country’s EITI payment and revenue data with corresponding payments-to-governments data disclosed under the European Union and UK extractives transparency laws.

Intrisic and instrumental importance

For those working to address the extractive industries’ “resource curse”, PWYP UK believes the UK EITI has both intrinsic and instrumental importance. Its intrinsic importance is potentially to help ensure that citizens and society gain fairly from the exploitation of the UK’s non-renewable natural resources and that adequate provision is made for future generations who will not have such resources to exploit. Instrumentally, the UK EITI enables civil society to show support for the UK Government’s role as a leading champion of the EITI as a global initiative, and of transparency and accountability in the extractive industries more broadly. Civil society participation in the UK EITI MSG has helped secure valuable transparency and accessibility gains on project-level reporting, beneficial ownership disclosure and open data.

However, UK implementation of the EITI since 2013 may have come rather late to secure intergenerational equity in relation to UK North Sea oil and gas, whose exploitation began long ago in the 1960s (gas) and 1970s (oil). And questions were noted in the recent validation of the UK as making “meaningful”  (rather than fully “satisfactory”) progress under the EITI’s rules that indicate why the EITI International Board does not yet consider the UK totally compliant with all the initiative’s requirements (although the compliance gaps are generally minor and straightforward to address).

One of the weaker areas highlighted by the UK’s validation process was licence and contract transparency. The UK was among the first countries to systematically publish petroleum exploration and production licences on the Oil and Gas Authority website. But, according to Rob Pitman, who leads the Natural Resource Governance Institute’s work on contract transparency: “The UK system is difficult to use for anyone without a strong technical background. As norms evolve and as more and more governments publish contracts (the latest count is 44), the UK will need to do more to keep track with good practices in this area. Recent strengthening of the EITI Standard in 2019 means that the UK will be required to publish all oil, gas and mining contracts and licences that are granted, entered into or amended after 1 January 2021. Meeting this requirement will entail publishing mining contracts and licences issued by government departments, the Crown Estate and Crown Estate Scotland for the first time.”

Public debate

The UK’s validation also highlighted a lack of public debate about the UK extractive sector following publication of the previous year’s EITI report. On the one hand, it is positive that UK citizens can almost certainly rest assured that there is no corruption in the relatively well-governed domestic oil, gas and mining/quarrying industries, in contrast to widespread civil society concerns about such sectors in many countries overseas. However, there are issues that arguably should be brought more to public attention via the UK EITI.

One is the climate crisis and the widely understood need for a low-carbon transition that addresses the rights of citizens of resource-rich countries in the global South and of working people in the global North whose livelihoods currently depend on oil and gas production and consumption (see the TUC on a just transition). If, as the science strongly indicates, humanity must drastically reduce its carbon budget, international fairness implies that extraction rights should be allocated more to the global South than to major historic Northern carbon emitters such as the UK. For the first time, the UK EITI report on 2018 acknowledges this issue, if briefly, by referring to decarbonisation in the narrative chapter on Upstream oil and gas in the UK.

In addition, with North Sea oil and gas production well past its peak, wider public discussion may be overdue about whether UK citizens and future generations have received a fair deal from 40-plus years’ exploitation of our country’s non-renewable resources, for example in comparison with Norway. The UK North Sea sector’s fiscal regime appears to some commentators to have been too generous to industry. If true, this would mean that as a country we have received less than fair value for our mineral wealth – a loss to both present and future generations. The adequacy or not of current provision for the large future costs of decommissioning also surely merits more debate.

To assist such points being brought more to public attention, there could be an annual debate in Parliament about the content and implications of each successive UK EITI report following publication.

A further point of note in this year’s UK EITI report is the statement that in November 2019 the UK Government “announced a moratorium on fracking [of shale gas] with immediate effect” and “will no longer be supporting further hydraulic fracturing activities in England” unless “compelling new evidence” about the risk of earthquakes linked to fracking operations “comes to light”.

The UK is due to undergo a second EITI validation in late 2020. In the meantime, the next UK EITI report, on 2019, will be required to meet the more demanding 2019 EITI Standard.